Crypto platforms rush to tokenize stocks and encounter “roadblocks”! Over 90% of target companies refused entry

The Zhitong Finance App learned that a tokenized stock trading platform operated by OKXICE, a joint venture established by cryptocurrency exchange operator OKX and the New York Stock Exchange parent company, OKXICE, is scheduled to be officially launched on November 23. The platform will list more than 70 digital assets linked to stocks and exchange-traded funds (ETFs).

However, not all assets will be open for trading when the platform launches. The platform originally wanted to include blue-chip stocks such as McDonald's (MCD.US), Coca Cola (KO.US), and JPMorgan Chase (JPM.US), but these companies opposed trading their shares on the platform, causing this plan to be blocked.

The boycott of listed companies highlights one of the obstacles this emerging market faces in the early stages of development — businesses need to balance the opportunities presented by tokenization with related concerns, including how their shares will be presented and traded on unfamiliar trading platforms.

Opposition is actually quite widespread. Of the 62 companies initially targeted by OKXICE, 56 objected, and only 6 companies did not publicly express their opposition. However, these 6 companies that have not publicly expressed opposition are all linked to the cryptocurrency industry, including Coinbase (COIN.US), Strategy (MSTR.US), and Robinhood (HOOD.US). Additionally, a total of 67 companies have opposed OKXICE's plans, including some that were not on its initial target list.

OKXICE was one of the first institutions to apply to the US Securities and Exchange Commission (SEC) to launch a tokenized stock trading platform. Such platforms are known as “tokenized securities trading places” (TSV for short). Previously, in September, the SEC gave the green light to start trading the digital version of the stock in the US. The SEC's so-called “Innovation Exemption” (Innovation Exemption) stipulates that third-party trading platforms such as OKXICE that wish to tokenize listed companies' shares must notify the stock issuer of the relevant plan and give the issuer 30 days to raise objections. If a company objects, TSV will not be able to tokenize its shares.

Ian Debord, acting CEO of tokenization startup Ondo Finance, said that the vast majority of companies OKXICE wanted to include objected, which shows that “many stock issuers are not focusing on tokenized stocks.” “The current system works well for them,” Debord said.

Although many listed companies targeted and planned to be included in tokenized transactions are voicing opposition, the pace of the cryptocurrency industry's competition for share in the US stock market continues to accelerate. Andrew Como, former governor of New York State and co-chairman of OKXICE, said that the launch of the platform is part of the evolution of the market. In the future, the market will gradually shift to 24-hour trading around the clock. Both retail investors and institutional investors will need to adapt to this change.

“There's no going back now,” he said in an interview. He explained, “The so-called 'no going back' means consumer demand. As you can see, companies are changing their minds and starting to think, 'We'd better get ahead of this new technology and this new market structure. '”

The New York Stock Exchange and NASDAQ plan to launch extended trading hours next month. The characteristics of round-the-clock trading in the cryptocurrency market have changed Wall Street expectations, causing the market to look forward to immediate and continuous access to the trading market. However, in a letter to the Trump administration on Tuesday, the Managed Funds Association (MFA) urged a cautious approach in gradually advancing all-weather transactions.

Regulators are also supporting a new type of derivatives contract — perpetual contracts. Perpetuals (also known as perps) are leveraged contracts. Unlike traditional derivatives, they don't have an expiration date. Perpetual contracts can be traded around the clock, including when the stock market is usually closed. The US Commodity Futures Trading Commission (CFTC) approved share-linked perpetual futures contracts last week. Such products will be jointly regulated by the CFTC and SEC. The prediction market platform Kalshi has begun offering individual share perpetual contracts linked to more than 50 companies, including McDonald's, SpaceX (SPCX.US), and Meta Platforms (META.US).

Earlier this year, with the outbreak of the war in Iran in February and the closure of traditional oil markets, perpetual contract trading volume began to surge on the all-weather cryptocurrency trading platform Hyperliquid. Hyperliquid will launch in 2023. The daily transaction volume of some oil perpetual contracts on the platform once soared to several billion dollars.

As a joint venture partner of OKX, Intercontinental Exchange has partnered with Trade.xyz, one of the market operators behind Hyperliquid, to establish a new perpetual contract trading market in the US. The market will be built on Hyperliquid's underlying infrastructure and will use products provided by Trade.xyz. These products are linked to the prices of stocks, stock indices, commodities, and currencies, but their launch is still subject to regulatory approval.

However, the Capital Markets Coalition representing Chicago Options Exchange Global Markets Corporation, Citadel Securities, a trading company, and an investor rights advocacy organization has requested a New York federal court to block perpetual contract transactions. The industry organization said that regulators did not follow the procedures stipulated in the Administrative Procedure Act (Administrative Procedure Act) when approving these new products.

In addition, other types of perpetual contracts previously approved by the CFTC have also led to lawsuits. CME Group, the world's largest derivatives exchange, sued the agency earlier this year, arguing that regulators should treat these products as swaps rather than futures contracts.

Similar to perpetual contracts, most tokenized stock transactions currently take place on overseas trading platforms, and US investors cannot use these platforms according to law. Stock issuers generally do not participate in the issuance of such tokens, and these tokens may also not include shareholder rights such as dividends and voting rights.

Nasdaq said it does not plan to list and trade its shares on any TSV platform. A Nasdaq spokesperson said, “After carefully weighing all factors, we have determined that the company's stock should not be traded on trading venues that cannot display the best price in real time, report trading information to the consolidated tape (consolidated tape), or provide the transparency investors expect.”

However, the exchange operator is still planning to provide stock tokenization services. Nasdaq is investing $100 million in Payward, the parent company of cryptocurrency exchange Kraken, as it sets out to build infrastructure to support tokenized stock trading. Nasdaq has announced a design plan aimed at giving listed companies more control over the tokenized form of their shares; at the same time, Nasdaq is also collaborating with Kraken to develop a transfer platform to enable tokenized stocks to flow between regulated markets and on-chain markets.